Statement by the IMF Staff Mission to the Union of the Comoros

Mr. Andrew Gilmour, the International Monetary Fund's (IMF) mission chief for the Union of Comoros, issued the following statement today in Moroni:

"An IMF staff team visited the Union of Comoros during December 1-15, 2006, to review performance under the current Staff Monitored Program (SMP). The team also discussed with the government a medium-term economic program based on their Interim Poverty Reduction Strategy paper (I-PRSP), which could be supported under the IMF's Poverty Reduction and Growth Facility (PRGF).1 The mission met with the Minister of Finance of the Union, the Governor of the Central Bank, the Ministers of Finance of the three island governments, as well as representatives of the Union national assembly, the private sector, and the donor community. In addition, the mission was received by the President of the Union and the Presidents of the three island governments.

"The Union of Comoros faces a unique historical opportunity to reap the benefits of improved political stability, providing an opportunity for major economic reforms and progress toward achieving the Millennium Development Goals. The IMF stands ready to assist in this process to the fullest extent feasible under its mandate. Moving toward a program that can be supported under the PRGF will require satisfactory performance under the SMP through December 2006, continued operation of the revenue sharing mechanism between the different governments, as well as agreements to clear external payments arrears. Also needed is an agreement on a policy reform program for the coming three years, including on a budget for 2007, and the mission has made good progress in its discussions with the authorities in this regard.

"We are hopeful that these pre-conditions can be met quickly, which would allow IMF Board consideration of the PRGF-supported program in the early part of 2007. While subject to adverse external and political shocks, Comoros has made positive progress under the SMP to-date. In particular, the new government has moved expeditiously to remedy the deterioration in public finances which occurred prior to the May presidential elections, and to restore inter-island cooperation. However, risks to such cooperation still remain, and we urge all parties to adhere to the inter-island revenue sharing mechanism which is critical for meeting the government's fiscal objectives, and for moving ahead with a substantive policy reform program.

"This policy reform program of the authorities, which could be supported under a three-year PRGF arrangement, would aim to maintain macroeconomic stability, boost growth, reduce poverty, and move Comoros toward fiscal and external sustainability. As a first step, broad understandings were reached on a 2007 budget that would, amid continued tight financing conditions, allow for the timely payments of all civil servants' wages and for a small increase in poverty-reducing spending. Looking ahead, reform of the civil service will be a priority, so as to improve public finances and allow for further increases in social spending. The authorities have also indicated their intention to strengthen institutional reforms established under the SMP, including improving economic governance and the investment environment. Such efforts will aim at creating the conditions for faster private sector growth, which is necessary to create employment and income.

"Approval of a PRGF-supported program would also be a key step for the Union of Comoros in moving toward debt relief under both the enhanced Heavily Indebted Poor Countries Initiative and the Multilateral Debt Relief Initiative. More generally, a PRGF-supported program should help catalyze increased economic support from the wider international community, in line with the commitments made at the donor conference in December 2005."

1 The PRGF is the IMF's concessional lending facility for low-income countries. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5½-year grace period on principal payments.